The Sixth Appellate District holds that the pre-foreclosure notice requirements of the Davis-Stirling Common Interest Development Act must be strictly construed to create a valid lien. Only valid liens may be recorded and subsequently foreclosed by the association. The case is Diamond v. Superior Court (Casa Del Valle Homeowners Association). The notice and procedural requirements can be found in Civil Code sections 1367.1 and 1367.4 and are summarized here.
Pre-Lien Notice and Procedural Requirements: A pre-lien notice must be served by certified mail on the owner at least 30 days prior to recording the lien which must contain the following:
- A general description of the collection and lien enforcement procedures of the association;
- An itemized statement of the charges owed by the owner, including items on the statement which indicate the amount of any delinquent assessments;
- A statement that the owner shall not be liable to pay the charges, interest, and costs of collection, if it is determined the assessment was paid on time to the association;
- A statement of the right to request a meeting with the board as provided by paragraph (3) of subdivision (c) of section 1367.1, i.e., a meeting to discuss a payment plan;
- A statement of the right to dispute the assessment debt by submitting a written request for dispute resolution to the association pursuant to the association’s “meet and confer” program;
- A statement of the right to request alternative dispute resolution with a neutral third party before the association may initiate foreclosure against the owner’s separate interest, except that binding arbitration shall not be available if the association intends to initiate a judicial foreclosure.
If requested by the owner, the association shall participate in dispute resolution pursuant to the associations “meet and confer” program. The decision to record a lien for delinquent assessments shall be made only by the board of directors of the association. The board shall approve the decision by a majority vote of the board members in an open meeting. The board shall record the vote in the minutes of that meeting. A lien is created when the association causes a notice of delinquent assessment to be recorded with the county recorder.
Notice Requirements After Recording a Notice of Delinquent Assessment: Once recorded a copy “shall be mailed by certified mail to every person whose name is shown as an owner of the separate interest in the association’s records, and the notice shall be mailed no later than 10 calendar days after recordation.” The association may foreclose the lien either by judicial or nonjudicial foreclosure provided the requirements of section 1367.4(c) are met, i.e., the delinquent amount exceeds $1800 or is more than 12 months delinquent.
Pre-Foreclosure Notice Requirements: Prior to initiating foreclosure the association shall:
- Offer the owner and, if so requested by the owner, participate in dispute resolution pursuant to the association’s “meet and confer” program or engage in alternative dispute resolution.The decision to pursue dispute resolution or a particular type of alternative dispute resolution shall be the choice of the owner, except that binding arbitration shall not be available if the association intends to initiate a judicial foreclosure. [Civil Code section 1367.4(c)(1)];
- The board of directors must vote to approve the foreclosure. “The board shall approve the decision by a majority vote of the board members in an executive session. The board shall record the vote in the minutes of the next meeting of the board open to all members. The board shall maintain the confidentiality of the owner or owners of the separate interest by identify the matter in the minutes by the parcel number of the property, rather than the name of the owner or owners. . . .” [Civil Code section 1367.4(c)(2)];
- The board shall provide notice by personal service in accordance with the manner of service of summons to an owner of a separate interest who occupies the separate interest or to the owner’s legal representative, if the board votes to foreclose upon the separate interest. [Civil Code section 1367.4(c)(3).
Remedies for Failure to Comply with Notice Requirements: Section 1367.1 provides remedies for an association’s failure to comply with the mandatory pre-lien and pre-foreclosure procedures and notice requirements.
- Where the assessment lien has not yet recorded: An association that fails to comply with the procedures set forth in section 1367.1 shall, prior to recording a lien, recommence the required notice process;
- After the assessment lien has been recorded: “If it is determined that a lien previously recorded against the separate interest was recorded in error, the party who recorded the lien shall, within 21 calendar days, record or cause to be recorded in the office of the county recorder in which the notice of delinquent assessment is recorded a lien release or notice of rescission and provide the owner of the separate interest with a declaration that the lien filing or recording was in error and a copy of the lien release or notice of rescission.” [Civil Code section 1367.1(i)].
The holding: A lien recorded in error, and therefore subject to release or rescission, includes a lien recorded without strict compliance with the statutory notice requirements. An association that records a lien in error must therefore re-notice and wait 30 days to re-record the lien. The notice requirements of sections 1367.1 and 1367.4 are mandatory and conditions precedent to the initiation of foreclosure by the association. Lack of compliance with a statutory condition precedent is fatal to a foreclosure action by the association.
Question: This case arose in the context of a judicial foreclosure. The great majority of foreclosures by homeowner’s associations in California are nonjudicial. Would the conclusive presumption regarding notice in a nonjudicial foreclosure sale to a bona fide purchaser apply to notice defects under Davis-Stirling?
Post Foreclosure Notice Requirements: A nonjudicial foreclosure by the association is subject to the right of redemption. The redemption period within which the separate interest may be redeemed from a foreclosure sale ends 90 days after the sale.The association shall provide the owner with a notice of sale which shall include a statement that the property is being sold subject to the right of redemption and of the applicable redemption period. Failure to provide this notice may void the sale: Failure to Provide Notice of Redemption Rights May Void HOA’s Nonjudicial Foreclosure.
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